Family firms are enjoying an ever-more significant presence among the world’s largest companies with family-owned businesses now accounting for 19% of companies in the Fortune 500 compared to 15% in 2005. While this is partly down to the rise of emerging markets where family firms are more common, family-owned companies in the US and Europe are also holding their own.
The ability to take a long-term perspective without having to meet investor demands, a reluctance to borrow that leads to more resilience in tough times and the better relations that founding families often have with employees can all combine to help family firms thrive while others struggle.
“Family enterprises are the backbone of economies throughout the world,” says Franco Morra, CEO HSBC Private Bank (Suisse) SA and Global Private Bank Regional Head EMEA. “There are more family firms now in the Fortune 500 than there were before the financial crisis which suggests a real resilience and ability to cope with a challenging environment.”
The world of VUCA
This resilience should stand family businesses in good stead as they seek to navigate a fast-changing global landscape – an environment that some economists describe as VUCA – volatility, uncertainty, change and ambiguity.
Global megatrends such as demographic change, globalisation, urbanisation, and the digital revolution are all combining to present a more fluid and disruptive business landscape and an ever-changing set of challenges for family enterprises.
“From what we’re seeing this pace of change is just getting faster and faster,” says Professor Bill Carney, an International Lecturer and Strategy Specialist. “So you have less time for reflection, less time to think about and plan your next step before you have to take it.”
Family businesses are acutely aware of the environment in which they are operating, according to PwC’s latest Global Family Business Survey ‘family businesses acknowledge they will have to adapt faster, innovate earlier, and become far more professional in the way they run their operations’.
The ability to adapt rapidly to change is critical for any business and for family enterprises where tradition may play a strong hand that is an interesting challenge. Firms that most likely started with some entrepreneurial flair from the founder are often then run with more conservatism as the next generation is reluctant to take risks with family money or break with long-held tradition.
Carney feels that in such a dynamic global environment the ability to innovate is vital for any business, not just family enterprises – and that innovation needs to be company-wide.
“Creativity and innovation is not a one-shot deal. It should be a company activity just as supply chain management or marketing is,” he says.
“To maintain the ongoing viability and sustainability of any organisation, innovation is paramount. The challenge is to embed structures and processes that allow for innovation to thrive.”
Amid the more typical economic challenges that family businesses face today, there are also potential issues from unexpected sources.
Our ageing population
We are witnessing some significant changes in the characteristics of the global population such as density and distribution. Perhaps most significant of all though is the changing age composition of our population and the maintenance of good health well into later life, as Sarah Harper, Professor of Gerontology and Senior Research Fellow, Nuffield College, explains.
“Over the last 100 to 150 years we have pushed death back across the life course. In 1850, half the European population died before reaching 45, now half of that population is likely to reach 85 years of age. The big question is ‘how long are our populations in the future going to live’?”
The implications for family businesses and the path of succession are very interesting. As the leaders of family firms live longer and are more productive at a later age – sometimes working well into their 80s – the subsequent generations may see their opportunity to take over limited.
“There are some very interesting questions raised,” says Harper. “What kind of societies are we going to live in when we do not inherit from our parents until we are in our 80s? What impact will these increasingly long and productive lives have on the intergenerational transmission of values, ideas, assets and wealth?
“For family businesses, it will add an extra layer of complexity to the process of succession planning if each subsequent generation does not see a clear route to inheriting the family business.”
Family businesses will always face issues that are unique to them as well as external factors which mean the resilience they have shown in recent times will continue to be a vital attribute.
“The external environment around us poses ever increasing challenges, whether it is social media, the economy or the changing attitudes of governments to wealth,” says Franco Morra.
“But family firms have proved they can be the most successful enterprises on the planet and will continue to be hugely important to the world economy, providing a spine of entrepreneurship and business growth.”